Charging Orders - discussion

[asokn]

The charge only attaches to the debtor's share of the property, whatever that may be. If, for example, the debtor owes £40,000 and has a quarter share in a property worth £100,000 in total then the charging order attaches to that quarter share, £25,000. When the property is sold the debtor will not receive any money as it will all be used to repay part of the debt but the creditor has no claim to the other three quarters of the sale proceeds. The creditor becomes unsecured again but now the debt is reduced to £15,000.

 

Some people will suggest that because the charge is registered as a restriction this makes a difference and the creditor need not be paid. In reality it just doesn't work like that so don't worry yourself about the apparent relevance of a restriction.

[AndyOrch]

Before April 2003

 

Once a charging order was obtained against a debtor over his interest in a property, whether he owned it solely or jointly, the charging order was registered as a caution at the Land Registry. This meant that the creditor or his solicitors would get 14 days’ notice from the Land Registry that the debtor and other owner or owners were trying to get rid of the caution, probably with the aim of selling the property. The fact that such notice had to be given meant that a debtor knew he could not sell the property before the creditor knew about it and took steps to prevent the sale. So the debtor would usually pay the creditor before selling the property. Cautions which were registered prior to April 2003 still remain effective and the creditor will get 14 days’ notice of any attempt to get rid of the caution.

 

April 2003 and afterwards

 

The Land Registration Act 2002 (LRA) and Land Registration Rules 2003 (LRR) introduced significant changes to land registration procedures. Cautions were no longer to be used. Instead when a creditor obtained a charging order against a debtor: If the property was solely owned by the debtor, or all owners of the property were debtors, for example husband and wife owning the property jointly and being joint debtors, then an ‘agreed notice’ was to be filed at the Land Registry by the creditor. Effectively this was almost as good as having a mortgage. The debtor could not realistically sell the property without repaying the debt to the creditor. However, if the property was jointly owned by the debtor with other none debtors, for example husband and wife owning the property and only one of them being the actual debtor, the creditor was not entitled to enter an agreed notice. Instead the creditor could only file a ‘restriction’ at the Land Registry in the following terms: “No disposition of the registered estate is to be registered without a certificate signed by the applicant for registration or his conveyancer that written notice of the disposition was given to [creditor...]

being the person with the benefit of an interim/final charging order on the beneficial interest of [name of... debtor].”This restriction was, and remains, practically useless.

 

 

The effect of the restriction The debtor and his joint owner’s freedom to sell the property is not affected by such a restriction. They could sell the property as if there was no charging order against the debtor. All that was required was that the new buyers or their solicitor write to the creditor informing them that they now owned the property and then confirm to the Land Registry that they had given that notice. Then the buyers could register the property with no further complications. The creditor, who is sitting back, waiting to get paid, instead just receives a letter confirming that a sale has already

taken place, typically a week or two after the sale so there is little they can do to get the debt paid. In theory the creditor could apply for a freezing order against the debtor to try and obtain the cash from the sale proceeds. However, most creditors will never make such an application: The cost of applying for such a freezing order would run into thousands of pounds. The debtor might have spent the cash from the sale of the property before the freezing order was obtained so there is little, if anything, for the freezing order to bite on.

 

Regards

 

Andy

[eggboxy1]

Some people will suggest that because the charge is registered as a restriction this makes a difference and the creditor need not be paid. In reality it just doesn't work like that so don't worry yourself about the apparent relevance of a restriction.

 

The "reality" is that many people who only have a Form K Restriction registered against their property pay off the attached Charging Order (when selling) on the advice of their conveyancing Solicitor. This, as many people have reported here and on other boards, is because many Solicitors aren't always aware of the changes made on the The Land Registration Act 2002 (LRA) and Land Registration Rules 2003 (LRR) or (as I suspect) don't want to rock the boat.

 

The fact is, however, there is no legal obligation to pay any money to a creditor under a Form K restriction when selling your house as it only carries the power of notification of a sale. As the Land Registry have also confirmed, as long as the creditor has been notified of the sale by the new owner they are not prevented from altering the LR details. So people with Restrictions (Form K) need to be aware of these facts and understand they have options when selling their house and not be swayed by a rather patronising "it just doesn't work like that so don't worry yourself about the apparent relevance of a restriction" point of view.

[asokn]

But, in reality, nobody will buy a house without an undertaking from the seller's solicitor to discharge all existing charges as a condition of the purchase.

[eggboxy1]

But, in reality, nobody will buy a house without an undertaking from the seller's solicitor to discharge all existing charges as a condition of the purchase.

 

Not true as we have just proved on MSE by helping a lady sell her house (with a Restriction) after her buyers Solicitor "refused to budge" without the undertaking you talk of.

 

Her property is now sold and whilst, in this instance, the creditor did obtain some money from the debtor the the point was made that a Form K restriction only has power of notification and the Solicitor had to accept to the buyers request to proceed with the sale on understanding the Restriction would fall away after the sale was made.

 

So the "reality" of what can be done, legally, needs to be understood by sellers with a Restriction to allow them the choice they have.

[asokn]

her buyers Solicitor "refused to budge" without the undertaking you talk of... in this instance, the creditor did obtain some money from the debtor... the buyers request to proceed with the sale...

 

I don't see the difference between what happened and what I said. Anyway, I don't say it can't be done just that the reality in 99% of conveyances is that it isn't.

[eggboxy1]

I don't see the difference between what happened and what I said. Anyway, I don't say it can't be done just that the reality in 99% of conveyances is that it isn't.

 

The difference is you're trying to maintain that 99% figure by falsely claiming that "in reality, nobody will buy a house without an undertaking from the seller's solicitor to discharge all existing charges as a condition of the purchase" ; whereas, I'm trying to reduce the 99% figure by explaining to people that there is no legal obligation to pay a creditor who only has a Restriction (Form K) and they have options when they do sell.

 

Sellers need to understand that where a Form K Restriction is in place, there is no Charging Order to be cleared from their property as one hasn't been registered against it. The Charging Order, in these instances, was only made against any Beneficial Interest the debtor may have in the property. All that creditor has legally been granted, under Form K, is a right to be notified of the sale being made by the new purchaser (or their conveyancer) and that's it!

 

The 99% figure is in place because, when challenged, it's being consistently proven that many Solicitors are unaware of the power a Form K Restriction has. Many, as I have said, are treating the Restrictions like an Equitable Charge and are paying them off, in my opinion, against the best interests of the clients who are paying them to protect those interests.

 

The particular interesting thing in the case I cited, was that the buyer was desperate to make the purchase and it was only when he pushed his Solicitor on the information gained from the LR (that when a purchase is made to a third party for value that the Restriction will then be automatically cancelled) that the Solicitor had to back down and proceed with the sale as his client wished.

[asokn]

Exactly, so unless you have a perfect storm of a desperate buyer, a willing solicitor, someone in the know at the land registry and a seller who is prepared to challenge their conveyancing solicitor on the point then things pan out in the usual way and the creditor is paid.

[eggboxy1]

Exactly, so unless you have a perfect storm of a desperate buyer, a willing solicitor, someone in the know at the land registry and a seller who is prepared to challenge their conveyancing solicitor on the point then things pan out in the usual way and the creditor is paid.

 

1. You don't need a desperate buyer just one who is explained a very simple

form.

2. You don't need a willing Solicitor, either, you just need to remind him/her of their duties (as was done in the case I cited) and that you are paying him/her for their service to protect your interests on the sale.

3. You also don't, amusingly, need anyone "in the know" at the Land Registry

as a Solicitors explanation, from the LR (regarding a Form K Restriction's automatic removal as being over reached after a sale is made for value to a third party) is available for everyone's consumption on this and many other forums.

 

As for a seller challenging their Conveyancer on this point, do me a favour! Would any seller in the knowledge of the above facts really be afraid to lose themselves thousands of pounds over telling a jumped up Solicitor the law? I think not and for whatever reason you feel the need to keep repeating the "party line" rhetoric on maintaining the status quo; the fact is people need to know their legal right of non payment on this matter.

 

Especially, in light of the fact that it is currently legal for creditors to go after "security" on their debts after having charged customers high rates of interest for lending that was classed as "unsecured". Maybe if those creditors were prepared to, retrospectively, adjust the debt owed to reflect a rate of interest that would have applied to a "secured" loan then people might feel differently about them going after a CO.

Edited April 8, 2012 by eggboxy1

[asokn]

I agree that people *should* try to challenge the status quo but in reality they don't.

 

Anyway, let's leave it there. I think we've both made our points on this aspect of the discussion.

[eggboxy1]

I agree that people *should* try to challenge the status quo but in reality they don't.

QUOTE]

 

And a glass can be half empty or half full.

[Ganymede]

1. You don't need a desperate buyer just one who is explained a very simple

form.

2. You don't need a willing Solicitor, either, you just need to remind him/her of their duties (as was done in the case I cited) and that you are paying him/her for their service to protect your interests on the sale.

3. You also don't, amusingly, need anyone "in the know" at the Land Registry

as a Solicitors explanation, from the LR (regarding a Form K Restriction's automatic removal as being over reached after a sale is made for value to a third party) is available for everyone's consumption on this and many other forums.

 

As for a seller challenging their Conveyancer on this point, do me a favour! Would any seller in the knowledge of the above facts really be afraid to lose themselves thousands of pounds over telling a jumped up Solicitor the law? I think not and for whatever reason you feel the need to keep repeating the "party line" rhetoric on maintaining the status quo; the fact is people need to know their legal right of non payment on this matter.

 

Especially, in light of the fact that it is currently legal for creditors to go after "security" on their debts after having charged customers high rates of interest for lending that was classed as "unsecured". Maybe if those creditors were prepared to, retrospectively, adjust the debt owed to reflect a rate of interest that would have applied to a "secured" loan then people might feel differently about them going after a CO.

 

 

 

I agree that when no lender is involved the Restriction won't pose a problem. However, what is being forgotten here is that the solicitor will also owe a duty of care to the lender. Almost all mortgage contracts will demand that all pre existing charges be discharged on completion.

[eggboxy1]

I agree that when no lender is involved the Restriction won't pose a problem. However, what is being forgotten here is that the solicitor will also owe a duty of care to the lender. Almost all mortgage contracts will demand that all pre existing charges be discharged on completion.

 

I think this is where the confusion is arising as some people are finding it difficult to grasp that there is no Charge to discharge (in these instances) when the property is being sold. The Charging Order the creditor has (where a Form K Restriction is registered) is made against any potential money (beneficial interest) the debtor has in the property.

 

The CO, because the property is jointly owned, was not now allowed to be registered against the property as an Equitable Charge (as it would be if the property was solely owned by the debtor) and therefore confers no guarantee or right of payment if a sale is made.

 

So just why Solicitors are taking it into there own hands to pay off a Charging Order attached to a Restriction, which they legally aren't obliged to, is what needs to be tested as they, in my opinion, are not acting in the best interests of their clients by doing so.

 

Lenders, too, need to be educated on the difference between a Form K Restriction and an Equitable Charge that legally needs to be removed prior to a sale being completed. I'm not saying it will be easy, but the more people stand up for their legal right not to pay the more the norm it will become.

Edited April 9, 2012 by eggboxy1

[Guest]

further re post #1, the MoJ have decided on the threshold re orders for sale at £1,000!

[ATTACH=CONFIG]34701[/ATTACH]

Edited April 11, 2012 by Ford

[Ganymede]

further re post #1, the MoJ have decided on the threshold re orders for sale at £1,000!

[ATTACH=CONFIG]34701[/ATTACH]

 

 

£1k? Useful!

[asokn]

I particularly enjoyed the table in the report which showed that no orders for sale had been made in the sample group for less than £1,000 anyway!

[eggboxy1]

It's actually quite an interesting read for anyone affected by a CO particularly the following section;

 

3.1 Compliance with a judgment order would continue to be the responsibility of judgment debtors. As long as the judgment debtor meets the conditions of a judgment order or instalment payments agreed and continues to engage with the creditor if difficulties or changes in circumstances occur, the need for the creditor to seek an order for sale is obviated. Should the judgment debtor default, the creditor may apply to the court for an order for sale (but as case law & TOLATA protects jointly owned, primary residences and those with dependents resident, this is only likely in cases concerning single owned properties, stocks, unit trusts or funds in court or secondary properties or land where the creditor can be assured of sufficient equity to cover the costs of the sale).

[Ganymede]

It's actually quite an interesting read for anyone affected by a CO particularly the following section;

 

3.1 Compliance with a judgment order would continue to be the responsibility of judgment debtors.

As long as the judgment debtor meets the conditions of a judgment order or instalment payments

agreed and continues to engage with the creditor if difficulties or changes in circumstances occur,

the need for the creditor to seek an order for sale is obviated. Should the judgment debtor

default, the creditor may apply to the court for an order for sale (but as case law & TOLATA

protects jointly owned, primary residences and those with dependents resident, this is only likely in cases concerning single owned properties, stocks, unit trusts or funds in court or secondary properties or land where the creditor can be assured of sufficient equity to cover the costs of the sale).

 

 

 

The above has always been the case but may be useful to put some peoples minds at rest.

[Basil Fawlty]

What is TOLATA?

 

BF

[eggboxy1]

The above has always been the case but may be useful to put some peoples minds at rest.

 

Exactly why it's here (and I hope your mind is at rest now regarding no CO having to be discharged on a sale where only a Restriction is in place:wink:)

 

BF

 

TOLATA = Trusts of Land and Appointment of Trustees Act

[asokn]

The Trusts of Land and Appointment of Trustees Act.

 

You may want to read Pickering v Wells and Close Invoice Finance v Pile for an interesting look at how ToLaTA affects applications for orders for sale.

 

EDIT: Beaten to it

[Ganymede]

Exactly why it's here (and I hope your mind is at rest now regarding no CO having to be discharged on a sale where only a Restriction is in place:wink:)

 

BF

 

TOLATA = Trusts of Land and Appointment of Trustees Act

 

 

Yes all the Land Registry requires is written notice that the Claimant has been notified of the sale to remove the Restriction.

 

However, there is still more to consider than just the Land Registry's requirements...

[eggboxy1]

Yes all the Land Registry requires is written notice that the Claimant has been notified of the sale to remove the Restriction.

 

However, there is still more to consider than just the Land Registry's requirements...

 

Please feel free to enlighten the forum as to what those requirements for consideration are?

[Ganymede]

Please feel free to enlighten the forum as to what those requirements for consideration are?

 

 

I already have.

[eggboxy1]

I already have.

 

Not regarding why a sale can't "legally" proceed you haven't.

 

Certainly, Solicitors and Mortage company's will pose obstacles but largely out of ignorance of the facts. As in the case I cited on MSE, when pressed the two Solicitors who "wouldn't budge" had to back down when confronted by the legal requirements of the Restriction. The point regarding Mortgage company's requiring clear title is very valid, but there is no equitable charge to clear in these cases so asking for one to be discharged is a bit silly.